Corn industry: Acres up; industry costs too?

Texas corn producers will increase acreage in 2007, but how much will depend on winter rainfall in typically dryland production areas.

Based on reports from seed companies and elevators across the state farmers are “looking for more seed and booking forward contracts,” says David Gibson, executive director of the Corn Producers Association of Texas.

Gibson also laid out other issues Texas Corn Producers and the National Corn Producers Board will be following in 2007. Concerns include: new insurance rules, offshore drilling for natural gas, increased demand and challenges for ethanol production, transportation and production cost increases.

Gibson said Central and South Texas corn growers show interest in adding acreage for 2007. “In the High Plains, we've seen many farmers make marketing contracts for 2007 and into 2008. Dryland production depends on rain, but we expect more corn. It's just hard to tell how much.” Gibson said increased production could mean “spot storage shortages. That's a potential issue at harvest.

“Transportation also may be taxed to move more grain. We bring a lot of grain into Texas to feed the livestock industry and it's getting harder to get that on line. Increased ethanol production may add to the (bottleneck).”

Gibson said the NCPB “puts a lot of emphasis on river transportation improvements. Railroads may be the next target.”

He says ethanol has been a catalyst to boost corn and grain sorghum prices. “We're looking at ways for producers to participate in this expanded market.

“Producing for the ethanol market is one option but moving into ethanol production may also give traditional grain producers new opportunities.”

Ethanol offers tremendous prospects but some challenges as well, Gibson said. “We've seen it coming, but Hurricane Katrina accelerated the process. We lost refineries and demand for energy exceeded supply. I hope the growth in demand for ethanol does not exceed what we can do efficiently.”

He said the surge in ethanol demand occurred quickly and may stress available infrastructure. “We don't want people disillusioned with an inadequate supply.”

He also voiced concern about potential effect on export markets. He's not particularly concerned about the “feed versus fuel debate. The market will determine adequate production levels. But foreign markets are concerned with our increased domestic demand. We export 20 percent of our production, about 2 billion bushels a year.”

About 60 percent of annual production goes into the domestic livestock market.

“Ethanol takes some of the supply and exporters wonder if they will be the first cut. The global situation is much different than just a few years ago. We can know quickly what happen in Beijing and they know what happens here.

“China's people want a better food supply and domestic production is not growing fast enough to meet demand.”

He said growers also need to bone up on new insurance regulations in force for the 2007 crop, especially as they apply to aflatoxin-contaminated corn.

“We have new rules on how to handle a crop at harvest,” he said. Under new rules, growers can get settlements within a matter of days after harvest. “In the past, if producers didn't sell out of the field they had to wait for a value to be established. A lot of difference exists for local values. These policy changes make it easier to settle on payments and to help growers maintain cash flow at harvest.”

Gibson said the NCPB is following legislation that would increase offshore drilling for natural gas. “We hope that passes,” Gibson said. “We need to increase the supply of natural gas because it affects production costs, fertilizer and fuel.

“Higher energy prices have spurred the ethanol market,” he said, “but has also pushed production costs up.”